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IBM to spin off infrastructure business as it goes all in on cloud

The deal is expected to close by the end of 2021

IBM has said it plans to split its business in half by spinning off its infrastructure services unit into a separate public company, bringing to an end a strategy that saw it attempt to shift towards cloud growth while maintaining a foothold in its legacy business.

The aim is to create two separate companies, each with its own strategic focus, in a tax-free deal expected to be completed by the end of 2021.

Announcing plans to create the yet unnamed company, IBM CEO Arvind Krishna said that “now is the right time to create two market-leading companies focused on what they do best”.

“NewCo will have greater agility to design, run and modernize the infrastructure of the world's most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders,” he added.

Commenting on the announcement, IBM executive chairman Ginni Rometty said that the company’s managed infrastructure services business “has established itself as the industry leader, with unrivaled expertise in complex and mission-critical infrastructure work”.

“As two independent companies, IBM and NewCo will capitalize on their respective strengths,” she said, adding that the NewCo “will accelerate clients' infrastructure modernization efforts”.

Meanwhile, IBM is to focus entirely on its AI capabilities and the hybrid cloud, which Krishna described as a $1 trillion opportunity.

However, IBM Systems, its mainframe division, will remain part of IBM, where the company will "continue to drive the innovation in hardware that enterprises rely on for their most mission-critical computing needs".

The company announced that it will accelerate its hybrid cloud growth strategy in order to streamline its clients’ digital transformation processes.

Rometty said that IBM has been set “for the new era of hybrid cloud” and credited the company’ acceleration of its open hybrid cloud platform to its acquisition of Red Hat, which was snapped up by  for approximately $34 billion in 2018.

IBM's open hybrid cloud platform architecture had been based on RedHat containerization software OpenShift.

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Last month, Red Hat and IBM co-launched a one-stop-shop marketplace for customers seeking to run OpenShift enterprise applications on their hybrid cloud infrastructures. The marketplace aims to deliver an ecosystem of software from independent vendors so enterprise customers can easily deploy new tools on their hybrid cloud infrastructures. Red Hat Marketplace offers a broad catalogue of more than 50 open-source software, from vendors such as CognitiveScale, MongoDB and StorageOS.

IBM said it expected to hit revenues of $17.6 billion, in line with estimates, in a separate earnings statement issued on Thursday.

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